Effect Of Social Media Interactions On Financial Performance Of Commercial Banks In Kenya

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Abstract

The study sought to establish the effect of social media interactions on financial performance
of commercial banks in Kenya. This study used a descriptive research design and all the
commercial banks in Kenya as the study population. The study used both primary collected
using semi-structured questionnaires through the drop and pick method and secondary data
from the banks’ financial reports. Multiple linear regression models was used to assess
whether financial performance is a function of the variables indicated on the specific
objectives. The study found that commercial banks have embraced social media interaction
and Facebook is the dominant platform with the highest number of users and the most
commonly used for interaction between firms and customers. Social media interaction offers
a platform for marketing and sales of products, development of new product brands, access to
real-time customer feedback to enhance banks’ understanding of the needs of their customers.
Average number of customers acquired through social media interactions was found to
increase gradually over the last three years ranging from 1,740 in 2011 to 5,000 in 2003, this
has lead to an increase in the average loan portfolio among commercial banks in Kenya
ranging from 53 billion in 2011 to 62 billion in 2013, this has increased their revenue from
the uptake of loans. Customer acquisition cost was found to decrease through usage of social
media to a great extent. Most commercial banks were found to review their social media
policies yearly while others reviewed them as and when need arises. Commercial banks were
found to experienced risk management issues concerns associated with adoption of social
media interaction, most of these risk were; operation, reputational and data and regulatory
risks, sales volume, customer acquisition cost and risk management and mitigation were
found to predict financial performance by a factor of 0.253, 0.209 and 0.105 respectively.
The statistical significance for the three variables were 0.05(sales volume), 0.07(customer
acquisition cost) and 0.39(risk management and mitigation).
The study recommends that for commercial banks to have a wide social network, they should
place some measures to encourage wide participation of the customers in social media
interaction within their sites which eventually increases their customer base. Additionally, the
study recommends that management should embrace social network as a way of interacting
with customers who may not be reached in other means.